If a company uses the indirect method to prepare the statement of cash flows, how will the adjustment to reflect the amount of cash received from customers be presented on the statement?

Question

Quizplus · Accepted Answer

The adjustment to reflect the amount of cash received from customers will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section. This is because under the indirect method, the statement of cash flows starts with net income and adjusts for changes in non-cash items, including changes in accounts receivable. An increase in accounts receivable would mean that the company had made sales on credit but had not received cash yet, which would need to be adjusted to reflect the cash received from customers for the period.

If a Company Uses the Indirect Method to Prepare the Statement